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Just another BRIC in the wall.

The surge in economic globalization since 1990 raised up some countries as potential rivals to the long-dominant Western industrial nations. In particular, Brazil, Russia, India, and China seemed poised to equal or surpass the economic power of the old leaders before the middle of the 21st Century. They have been labeled the “BRIC” countries.[1] Unfortunately, “many’s the slip between the cup and the lip.”

As late as 2010, Brazil possessed an apparently dynamic economy.[2] Great results were expected from the oil reserves discovered off-shore[3] and the economy was growing at a rate of 7 percent a year. The government took advantage of the boom in the economy to embark on a generous social policy: cash-transfers and easy credit both raised 40 million Brazilians into the middle-class and expanded consumption. Government deficits, rather than higher taxation on the wealthy, expanded to finance these policies. So long as the economy continued to expand, however, there seemed little danger from these please-everyone policies.

However, aspirations aren’t the same as achievement. Brazil remained a chiefly primary-product (agriculture, mining, forestry) economy. Sugar, soybeans, coffee, and oil were all major exports. Therefore, the Great Recession hit Brazil’s export sector very hard: Chinese and German imports of Brazilian goods slumped; the prices for its main crops sank, some by as much as a third.

By 2015, the whole process seemed to have gone into reverse: economic growth has stalled and teeters on the edge of recession; government debt has expanded at an alarming rate as it tries to keep promise made in happier times, but bond-rating agencies have down-graded Brazilian government debt; the nominal inflation rate is 8 percent a year, but interest rates are at 13 percent (so people may believe that the inflation rate is higher than official statistics claim). The standard solution to such problems is one of “austerity”: cut government spending and increase tax receipts to reduce borrowing. Cutting government spending mean in large part reducing the pay and benefits of public sector employees. They aren’t happy with this reversal of course.

To make matters worse, corruption is endemic in many developing countries and that includes Brazil. Soon after the Workers Party, under President Luis Lula da Silva, took power in 2003, an official investigation began into accusations that the Workers Party had engaged in bribery of legislators to get the government’s policies through the legislature. In 2013 Brazilian police began an investigation into the giant state-owned oil company, Petrobras. The reports so far indicate that Petrobras has been over-paying contractors, who then kick-back part of the profit to the Workers Party. Police arrested the Party’s treasurer, along with many other politicians and businessmen. A proposal by current president Dilma Rousseff, Lula da Silva’s successor, to limit the ability of prosecutors to investigate charges of corruption against politicians stinks to high Heaven. Many Brazilians are enraged over austerity and corruption.

The recent performance of the BRIC economies has been scattered, but long-term performance is what matters for shifting the world balance of power and prosperity.

[3] Early—and apparently exaggerated–reports on exploration of off-shore reserves suggested that there is $1 trillion worth of oil and gas. However, off-shore drilling almost forty miles out in the Atlantic has its challenges and much more modest estimates of the extent of the reserves have begun to come in. The recent decline in world oil prices also has reduced the value of whatever reserves do exist.